Energy stocks have gained ground in recent trading sessions as oil prices have surged to new highs for the year, and the positive momentum shows no signs of slowing. Crude futures are still exploring new 2023 highs in today's session, with the October contract (CLV23) peaking earlier at $93.74, and the more active November contract (CLX23) rising to an intraday high of $92.43 so far.

Typically, oil prices and the performance of energy stocks are directly correlated. That means continued strength in commodity prices should provide support for the sector going forward.

Keeping this in mind, here are three buy-rated energy stocks under $20 to consider as oil prices rise. 

Plains All American Pipeline

Valued at a market cap of $10.65 billion, Plains All American Pipeline (PAA) is engaged in the operation of midstream energy infrastructure. It provides logistics services for crude oil, natural gas liquids (NGLs), and natural gas. The crude oil business is engaged in pipeline transportation and storage, while the NGL business produces basins and transportation corridors.

PAA has ties to quality oil basins in the U.S. and a low-cost base. The company has reduced balance sheet debt in the past year, allowing it to increase free cash flow by almost 120% sequentially in Q2. 

In the June quarter, it reported adjusted earnings of $0.25 per share, above estimates of $0.21 per share. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in the crude oil segment rose 7%, as pipeline volumes were up 13% at 8.4 million barrels per day.  Despite a difficult macro environment, PAA is on track to end 2023 with an EBITDA of over $2.5 billion this year. 

PAA also pays shareholders an annual dividend of $1.02 per share, indicating a yield of 6.69%. Its payouts have risen by almost 50% in the last two years. 

Out of the 15 analysts tracking PAA, 10 recommend a “strong buy,” and five recommend a “hold.” The average price target for PAA is $17.03, indicating an upside potential of over 10% from current levels.

After adjusting for dividends, total returns will be closer to 18% - which is quite significant, given PAA is up 39% in 2023. 

Patterson-UTI Energy

Patterson-UTI Energy (PTEN) provides contract drilling services to oil and natural gas operators. In Q2 of 2023, it reported net income of $84.6 million, or $0.40 per share. Adjusted earnings of $0.44 per share arrived in line with analysts' expectations, continuing a trend of matching or beating the Street's bottom-line estimates.

The company emphasized its contract drilling business performed well in Q2, with sequential gains in sales and profit margins, Its contract renewals positively impacted average revenue and adjusted margin on a per-day basis, which offset a marginal decline in its rig count. 

Patterson-UTI Energy pays shareholders an annual dividend of $0.32 per share, indicating a yield of over 2%. In Q2 of 2023, it repurchased 1.8 million shares, bringing the total buyback to 7.4 million shares this year. In total, the company returned $126 million to shareholders in the first six months of 2023. 

Priced at 10.6x forward earnings, PTEN is quite cheap relative to its industry peers - even after a standout 31% rally in the shares over the past few months.

Out of the 13 analysts covering PTEN, six recommend “strong buy,” two recommend “moderate buy,” and five recommend “hold.” Wall Street has an average price target of $17.65, which is 15.4% above current levels. 

Talos Energy

The final under-$20 energy stock on my list is Talos Energy (TALO), which is engaged in the exploration and production of oil and natural gas. The company produced 70,300 thousand barrels of oil equivalent per day in Q2, allowing it to generate $367.2 million in sales. Its net income stood at $0.11 per share, or $13.7 million, in the June quarter. On an adjusted basis, EPS arrived at $0.09.

Unlike the other two energy stocks discussed here, Talos Energy does not pay shareholders a dividend, as it continues to heavily invest in capital expenditures. Its capex in Q2 stood at $191.2 million, which is over 50% of sales. 

Priced at 9x 2024 earnings, Talos stock trades at a discount of 23% to consensus estimates, given the average price target of $21.40. Each of the five analysts tracking Talos Energy has a “strong buy” recommendation.